Your own home. Just saying that can be exciting and a little bit overwhelming, long before you actually get the house. If you’re just about to buy your own home, then this is an amazing feat! With the excitement comes a rushed feeling that sometimes leads to a rushed and impulsive purchase. Don’t make that rookie mistake. Here are 8 things you need to know before you make the biggest purchase of your life.
1. No Debts
Take a step back and analyze your situation. The decision of buying a house should be rational, not emotional. Pay off all your debts and have an emergency fund. This may not be what you want to hear, but it is essential. What many people do not understand is that owning a house does not mean all your expenditures, like rent, are going to disappear. You’re about to become a homeowner. You will be responsible for maintenance, accidents, and repairs. These add up faster than you think. Before buying your first house, ensure you have no debt to be paid, in addition to an emergency fund that can last for almost 3 to 6 months of expenses.
This will protect you from the financial crisis that many rookie homeowners face after making a rushed decision. It doesn’t mean you can’t buy a house with debt. It only means that when you lower the debt, you lower the risk of having to deal with financial issues.
2. Save For Down Payment
Start to save early. It is not reasonable to pay cash upfront for a house. So, save for the down payment. The down payment can be around 10 to 20% of the total price of your house. If you have a 20% down payment, it usually lets you get out of paying for the private mortgage insurance. The insurance usually costs around 1% of the loan. When it adds up to your monthly payment, it can become a lot.
In addition to the down payment, the closing cost is also something you need to keep in mind. Your lender gives a number, normally 3 to 4% of the total cost. The closing cost covers the appraisal, home inspection, attorney, assurance, and credit report. So, don’t forget to save for the closing cost as well as the down payment.
3. Can You Afford it? The 28/36 Rule
The 28/36 Rule is that you can only spend 28% of your take-home pay on housing and 36% on your total debt. This means that you shouldn’t only focus on your income while assessing whether you can buy a house or not.
The down payment is the other giant you need to keep in mind. If you put down 20% of the purchase cost, you need to accumulate that after all. With the closing costs, moving expenses, and an emergency fund for a rainy day, you need to calculate your finances carefully.
4. Is Your Credit Score Good?
To get a loan for your perfect home, you need to have a good credit score, loan-to-value ratio, and debt-to-income ratio. It is important that you carefully check your credit report. Many times, there are errors in the credit report and these errors can lead to higher rates on your loan. pay your bills on time, keep all current credit cards open and track your credit score meticulously.
5. What’s The Best Mortgage Plan
Consider a 15-year term or a fixed-rate conventional loan. WIth 15-year term, you will completely and definitely own your home in 15 years. Although the monthly payments will be higher, it gives the lower interest rate. So, you save tons in interest and after 15 years, your payments can turn into wealth building or other financial goals.
A fixed-rate conventional loan is also suitable due to the interest rate. It keeps it the same throughout the time you will be paying the loan. This means that your expenses won’t increase even when rates are rising. Remember that in a 30-year mortgage, you will be paying more in the long run because of the constantly rising interest.
6. Get Pre Approved
When you think you have enough money saved up for the down payment, closing cost, and moving expenses, your credit is doing okay and you are ready to buy your ideal home now; it is time for the next step. The moment your finances are in order, the home loan specialists at https://lendingloop.com.au/ advise you to get a pre-approval for a loan the moment you see your finances are doing good. A pre-approval will not only make you mentally ready but also boost your confidence. This will give you a negotiating advantage while you are house hunting.
7. Now, Hunt!
Factor everything in while you hunt: home’s condition, size, quality of the neighborhood, crime rates, nearby prime locations, grocery stores, and distance from the schools and your workplace. The location matters a lot when it comes to your home. To research, ask your real estate agent questions in regards to the neighborhood and crime rates. Make sure you consider how much you will be spending on the commute and how much time it will take. This way, you’ll be able to shortlist a few neighborhoods then attend a few open houses to get a better idea. When you eventually find the ideal house, you’ll know why this is ideal in the first place and how it compares to all the others you saw before.
8. Think Long term and Negotiate well
When making an offer, think long-term. Consider the home value and the economic activity in the neighborhood. With great research, you know that now. You already know how much houses in similar areas cost, and whether the home prices are rising and declining. Negotiate while factoring these in. Make sure that you take advantage of the preapproval. If you’re confused about what you should be offering even after research, then you can ask your agent to help in making a better offer. Be rational and do not make last-minute impulsive decisions.
Before you make (possibly) the biggest purchase of your life, take a deep breath. Now you’re ready to buy your first home. As daunting as it is, do not back down, and ensure your finances are set before you make a decision. As long as you are managing your finances well, you have nothing to worry about. Don’t risk anything with emotional decisions while house hunting and making an offer. Now go get that beautiful home of yours.